Tag Archives: trade

Environmental Cooperation under CETA: Bold New Linkages, Bolder Risks

 

 

 

 

Sabaa A. Khan and Kati Kulovesi

Dr Sabaa A. Khan is Senior Researcher at CCEEL / UEF Law School. Her areas of expertise include regional trade agreements and she serves on the Joint Public Advisory Committee of the Commission for Environmental Cooperation, under an appointment by Canada’s Minister of Environment and Climate Change.

Dr Kati Kulovesi is Co-Director of CCEEL and Professor of International Law at the UEF Law School. She specializes in climate change law and holds a PhD in international economic law from the London School of Economics and Political Science.

The EU and Canada highlight climate change and the Paris Agreement in context of the CETA

In the same week as Canada, Mexico and the United States signed a new regional trade agreement that makes absolutely no mention of climate change, Canada and the EU made new efforts to formalize the climate change and trade linkage within the Canada-EU Comprehensive Economic and Trade Agreement (CETA). Representatives of the EU and Canada convened in Montréal for the inaugural meeting of the CETA Joint Committee, mandated to oversee and facilitate the implementation of all aspects of trade and investment under the CETA.

The meeting’s outcomes included a recommendation on ‘trade, climate action and the Paris Agreement’, reiterating the Parties’ shared commitment to the international climate change regime and Article 24.12(1)(e) of the CETA that specifically addresses climate change. The recommendation further signals the Parties’ intention to “step up the role of the Paris Agreement in their bilateral cooperation”.

This can be seen as a promising signal that the international climate change regime will play a salient role in shaping mega-regional trade flows. It is worth noting, however, that the increased trade in merchandise that has taken place under the first year of the CETA’s provisional application appears to be in sectors that are energy-intensive, and closely linked to the high-emissions extractive industries.

Source: Government of Canada

Moreover, the Joint Committee’s reaffirmation of the Paris Agreement at this point in time is an environmental moment worth modest celebration in light of ongoing concerns regarding the potentially massive environmental implications of the CETA investment protection provisions and the legally-ambiguous investment tribunal established under Art. 8.27.

Will the CETA’s Investment Chapter Have a Negative Impact on Environmental Protection in the Finnish Mining Sector?

While Canada and the EU continually underscore the immense mutual benefit that the CETA brings to businesses and communities and its environmentally progressive nature, it is difficult to ignore that the greatest environmental impact of the CETA is likely to be determined by its Investment Chapter, not the Trade & Environment Chapter that is explicitly dedicated to environmental issues.

The basic idea underlying the CETA’s Investment Chapter is to ensure that investors are treated equally and fairly, and that there is no discrimination between domestic and foreign investors. One of the mechanisms it includes for foreign investment protection is the possibility for investors to take legal action against governments through a new Investment Court System. A critical apprehension in this respect is that the prospect of costly legal challenges and damage to a country’s reputation in hosting investment might discourage governments from taking legitimate and necessary regulatory and administrative actions to protect environmental and public interests.

Even though the Investment Chapter reaffirms Parties’ regulatory right with regard to achieving legitimate policy objectives, including the protection of public health and the environment (Article 8.9), the provision on what constitutes a breach of fair and equitable treatment of investors (Article 8.10.4) leaves open the possibility for an investor to challenge governmental measures based on “legitimate expectations.” In light of these provisions, there are valid concerns that the CETA’s profitable implications for Canadian and EU investors come at the expense of the Parties’ willingness to regulate in the public interest and according to the principle of sustainable development.

In the context of the mining industry in particular – a key Canadian sector expected to benefit from the trade agreement – it is difficult to set aside the potential environmental and public health risks for EU Member states that are linked to the CETA’s investment protection rules and dispute settlement architecture. With over 50% of publicly-listed global exploration and mining companies headquartered in Canada, the CETA has not only opened up EU market access to a lucrative and globally powerful group of corporations, it has empowered them through the investment protection chapter to challenge public policy measures that interfere with their natural resource development projects.

In Finland, the mining sector has been one of the key concerns in the context of the CETA. Past negative experiences, including from the Talvivaara mine, have increased the public’s awareness of the sector’s potential environmental impact. When approving the CETA, the Parliament requested the government to evaluate the need to reform the Finnish mining legislation in consideration of the CETA. In response, the government commissioned an expert report, which saw no need for reform. The report’s key message is that the Finnish legal system already contains adequate protection to ensure investors’ fair and equitable treatment.

This finding and the report have, however, generated controversy, not least because the report was commissioned from a law firm known for representing the interests of the mining sector and multinational mining companies. One of the questions is whether the legal analysis in the report is objective enough to constitute a response to the Parliament’s request.

Looking at the report commissioned by the Finnish government, it contains comprehensive and well-informed analysis of the Finnish national legislation. However, the international law dimension would have merited more attention. This would have included analyzing relevant case law to understand what kind of government actions have been challenged through investor-state dispute settlement. Such analysis should have studied at least case law involving the mining sector and Canadian mining companies.

Looking at investor-state dispute settlement, Canadian mining companies already have an extensive track record in seeking financial compensation from governments through arbitral disputes. The request for arbitration filed at the International Center for Settlement of Investment Disputes (ICSID) by Toronto-listed Gabriel Resources against Romania, seeking $4.4 billion for alleged losses in its halted gold-mining project, and the dispute between Vancouver-based Eldorado Gold and Greece (ruled in favor of Eldorado Gold) over the environmental impacts of mine development in the northern region of Halkidiki, are reflective of the kind of mining disputes that could proliferate under the CETA.

In the Gabriel Resources vs. Romania case, the mining company is basing its claim on “unjustified delays in the administrative permitting process, imposing shifting and non-transparent legal requirements, politicizing applicable legal and administrative processes, and ultimately abdicating the responsibility to make decisions on the permitting of the Project in contravention of the applicable legal framework.” In Eldorado Gold vs Greece the claimant’s argument also concerned, inter alia, delays over issuing environmental permits.

A quick glance at the relevant case law thus shows that legal arguments made in the actual proceedings tend to be more complex than those studied in the expert report commissioned by the Finnish government. It would therefore have been useful to also study the actual case law and consider its relevance in the Finnish context. Whether this would have affected the overall conclusion remains unknown without comprehensive analysis.

Overall, the concern remains over the CETA’s Investment Chapter risking to immobilize EU Member states’ from regulating in the interest of public and environmental health protection. Of course, Canada could face similar challenges brought on by EU investment in Canada-based mining operations. Since the Investment Chapter has not been implemented under the provisional application, and the CETA itself has yet to be fully ratified, there is still space for EU Member states to bring in mining legislation reforms to counteract the possible financial, environmental and public health risks associated with the expansion of Canadian mining interests in the EU.

Why multilateralism matters

 

 

 

Moritz Wüstenberg

Junior Researcher, Energy Law

LIBERAL TRADE has faced growing resentment from several directions in recent years. The decision by the United Kingdom to withdraw from the European Union following a 2016 referendum has affected both businesses and individuals. On the other side of the Atlantic, the 2016 election of President Trump was built on a campaign of protectionism and threats to multilateral trading rules. Disrupting the international trading system in order to realise an “America first” policy or to cast of the shackles of the European Union raise concerns and questions. In addition to creating economic benefits, trade on multilateral terms has for centuries been recognized as a key tool for maintaining peaceful relations between nations. If multilateralism fails, how will this impact geopolitics? Some exceptions, such as those allowing for closer cooperation without infringing on the multilateral rights, are sanctioned by the multilateral rules of the WTO and their use is on the rise. Is an increase in the use of exceptions to multilateralism a cause for concern?

THE REDUCTION of tariffs has been achieved through several rounds of negotiations under auspices of the General Agreement on Tariffs and Trade (GATT) in the wake of the Second World War. The outcome these means that trade in goods today is nearly tariff free. A key ingredient for the success of the GATT negotiations was the Most-Favoured Nation (MFN) clause, through which tariff concessions negotiated between some Members were multilateralized to all on a non-discriminator basis. In tandem with trade liberalization the global economy witnessed rapid growth of income, creating wealth for those taking part in the process. The driver of this growth has been argued to have been the virtuous cycle in which tariff cuts led to increased trade, which in turn led to more income which yet again enabled tariff cuts. Today, the MFN clause remains a cornerstone of the World Trade Organization Agreements (WTO) with only few exceptions to it.

PREFERENTIAL TRADE Agreements, such as the European Union, NAFTA or the CETA, that offer deeper liberalization to its Members, but do not raise tariffs or other barriers to trade vis-à-vis those WTO Members that are not part of the pact, form the most important exception to the MFN obligation. In general, the preconditions for deviations from the MFN principle are threefold: transparency (the requirement to notify), commitment to regional trade liberalization (the requirement that PTA´s cover all trade between parties) and neutrality in relation to non-parties. The number of PTA´s has grown rapidly in the past decades, leading to concerns on the erosion of multilateralism. This echoes also the broader discussion on the fragmentation of international law, ongoing for more than a century.

THE POSITIVE economic effects that can be achieved through liberal trading policies have been evident in both Great Britain in the 19th century as well as the United State in the 20th century. The repeal of the Corn Laws in 1846 ended a period of mercantilism in place since 1815 and pushed Great Britain into prosperity by embracing free trade, even on unilateral terms. The underlying theory was and remains that gains can be made by specializing in the production of certain products and then exchanging these for products that others produced efficiently. Free trade would eventually lead to an efficient outcome as nations produced those goods which they could produce most efficiently. With its bet on free trade, Great Britain would be the leading economic power of the 19th century.

SUCCESFUL POST-WAR settlements, at least since the 1648 Peace of Westphalia, have specifically recognized the relevance liberal trade has for the maintenance of peaceful relations. Are the mostly peaceful relations since the Second World War under threat from the rattling of trade sabres? While it is unlikely that neither the protectionist policies of the United States or the withdrawal of the United Kingdom from the EU will have any imminent effect on peaceful relations between nations, the stakes are high. Throughout recent history, liberal trade has functioned as an assurance against armed conflict and, conversely protectionism has preluded conflict.

A RECENT investigation on the effect of aluminium and steel imports (Section 232 investigation) on the US economy concluded that these have a negative effect on the National Security and can therefore be “adjusted”. Against a backdrop of several options to protect the domestic industries, President Trump chose to raise duties on imports from all countries including Canada and the European Union. Calls for retaliation were immediate, reflecting the conception that the measures of the United States are unjustified.

NATIONAL SECURITY exceptions are found in most trade agreements, including the WTO agreements. The US seems to have prepared to make use of this exception by broadening the traditional interpretation of national security beyond national defence to include also economic security in the aluminium and steel investigation. The apparent reason behind this interpretation is an attempt to rely on a little used MFN exception of the GATT (Article XXI) that allows WTO Members to take `any action which it considers necessary for the protection of its essential security interests`. While there are qualifications for the use of Article XXI, it is in effect self-judging it suffices that the measures taken are considered necessary by the state taking them. Invoking this article without due cause could be the straw that breaks the camel´s back, undermining the effectiveness of the multilateral framework and causing other nations to retaliate by also invoking Article XXI to justify their trade restrictive measures.

THE POLITICAL “TRILEMMA” is how the economist Dani Rodrik has described the problem facing international economic integration. Nations have to make a choice between two of three lines of policy: international economic integration, the nation-state and mass politics. Should international economic integration be maintained, either the nation-state or mass politics have to be sacrificed. With both America and the United Kingdom choosing the nation-state and mass politics over integration, only time will tell if history will repeat itself with trade protectionism flowing into geopolitical tensions.

DEEPER COMMITMENT to free trade without diminishing the rights of WTO Members is at the core of the Preferential Trade Agreement exceptions to MFN treatment. Negotiation with fewer nations enables faster decision making and makes it possible to overcome the foot-dragger effect which the consensus based rules of the WTO can have. Consequently, PTA can be seen as a building block as opposed to a stumbling block for multilateralism. Moves toward unilateralism as witnessed in the US aluminium and steel investigation, on the other hand can be considered conflicting with multilateralism. It remains to be seen if trade-politics convert to geo-politics and, more ominously, trade wars morph into real wars.

This blog is based on the author’s recent publication ´Back to the future: MFN treatment in an era of protectionism´ in the Nordic Journal of International Law. This publication reviews the development of the Most-Favoured Nation clause in light of historical events and analyses its importance in trading relations today.